Privatisation critical for MAS' survival, says analyst

Ahmad Maghfur Usman, Regional Transportation Analyst at RHB Research Institute, said: "Basically, MAS is right now going under water, and shareholders unable to recoup their investment. So, for the minority shareholders, it is better to take the 27 sen offer than being left empty handed.

"The saving grace for MAS at this point is privatisation and without it, the other option is to declare bankruptcy."

He was painting the scenario for minority shareholders ahead of the crucial Nov 6 EGM.

Ahmad Maghfur said if the EGM voted against privatisation, Khazanah Nasional Bhd which owns the majority stake in MAS, would not want to inject funds into it, making it tough for the airline then to restructure.

Khazanah had in August unveiled a radical 12-point restructuring plan costing RM6 billion to save MAS and RM1.4 billion would be paid out to minority shareholders, if they voted for the 27 sen offer.

It would also pave the way for the delisting of MAS from Bursa Malaysia.

"Going for bankruptcy is very challenging. This will also be the worst case scenario for the minority shareholders and will put pressure on the share price as such. MAS won't be trading at the same level.

"I would urge the minority shareholders therefore, to get their priorities right at the EGM," Ahmad Maghfur said.

He told Bernama that the 27-sen offer was an "attractive price", with all things considered, and the dire circumstances MAS has plunged into.

"It is an attractive offer. While not really much from where the share price is currently trading at, for the minority shareholders, it is an attractive exit offer," he said.

He said the privatisation of MAS would actually ensure a smooth transition for the restructuring, as well as insulate investors from being exposed to deeper losses.

"This is good reason why the minority shareholders need to take up the offer at hand," he added.

Delisting, Ahmad Maghfur said, was a necessary first step to restructuring, unlike the previous case of Petronas privatising the Malaysian International Shipping Corporation (MISC).

"MISC was a different landscape back then as it had successfully disposed of its container vessels division which was bleeding losses. The shipping industry was then at the bottom of its cycle and could only go up," he added, in recalling the 1990's move.

He said in the case of MAS, the situation was also totally the opposite as the airline is facing very aggressive competition.

He also contended that there is no basis for minority shareholders to demand more than the 27 sen offered.

"The outlook for MAS is still very challenging. Since the announcement on the restructuring, I haven't seen any meaningful change in terms of the game plan.

"MAS is still offering discounts and such and it will be an ugly scenario over the next two quarters in terms of earnings," Ahmad Maghfur highlighted

Given the intense competition in the industry, he said the minority shareholders should brace themselves for a very tough four to five years ahead without the restructuring, while expressing confidence that the majority of them would vote to accept the offer.

He said what was immediately crucial is for MAS to return to profitability, and in this light, he hailed the plan to cut the workforce by 30 per cent, though this would entail a RM1.2 billion compensation.

"For MAS, if it's able to trim the workforce by 30 per cent, you are looking at an annual saving of about RM700 million.

"On top of that and assuming this privatisation comes successfully, the interest saving from the debt to equity conversion, would boost earnings as well,".

Ahmad Maghfur said for MAS employees, it was a difficult transition period with the possibility of losing their jobs, but Khazanah has been accommodative with its back-up plan for retrenched employees to be absorbed into other employment opportunities.